The U.S. Congressional Budget Office (CBO) released the budget numbers for the first 4 months of fiscal year 2025 (Oct-Jan). Outlays where $838Bn higher than revenues. If we annualized that figure, the expected budget deficit for the year will be $2.5Tn. That amounts to 8% of GDP, one of the highest in the world, and certainly becoming unmanageable if not taking immediate action. That is weakening the U.S. balance sheet and shredding the value of the dollar (and therefore the whole fiat system) which is why you see gold trading at all time highs. The DOGE has committed to reducing spending by $1Bn a day, which means that if they let them actually do that, they may be able to reduce the deficit to 7% this year, and perhaps to 5% in three years, everything else being equal with a perfect execution of the cuts. Even with that, the numbers don’t add up, and without additional austerity, the US may enter in a debt spiral, where rates go up because Treasuries are perceived to be riskier. But if too much austerity is applied, the risk of a recession goes up. In that scenario, we will see the Fed resuscitating its QE program to buy treasury debt and keep rates low, to allow the Treasury to finance the deficit at lower rates, while austerity is applied.
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